“We take a closer look at useful products than we do with fun products”

A popular marketing instrument on the internet is the discount – e.g. on sites such as Groupon – where coupons for products or services are offered for a few days for deeply reduced prices. Professor Skiera on the question of whether this type of promotion is worth it for companies, or rather for customers.

These promotions seem not to be worth the trouble for businesses at the first glance. Intermediaries such as Groupon charge half of the coupon price, which is often only half as high as the usual price. Suppliers then are left with only a quarter of the actual price. Nevertheless, most of these deals do compute in the long run. For one thing, vendors often have other gains with the redemption of a coupon: for example a restaurant that sells a coupon for a meal can still make a small profit on the drinks sold. It is crucial, however, that many vendors gain new loyal customers through this type of promotion. In this case, an initial loss can be turned into a profit later.

The type of product sold plays a role in the structure of the promotion. In a current study* we differentiated between products that are predominantly used for enjoyment (e.g. a candle light dinner) and useful products (e.g. a bicycle repair). According to our findings, the price discount is important for the success of this type of sales promotion for useful products, while with the hedonic products it helps to increase the time pressure and therefore select a short period of time for the promotion. The reason for this is that the consumers take a closer look at useful products and therefore perceive low prices better. With hedonic products, in contrast, consumers let it depend on a try and assume, for example, that offers with a very short validity period must be exceedingly attractive.

In order to help small business owners decide whether a discount promotion is worth it for them, we developed an online calculator several years ago: www.coupon-calculator.de. After answering a few questions, one can find out whether a planned promotion is worth it or not.

This article was published online (in German) for the UniReport, issue 2.16

* Eisenbeiss, M., Wilken, R., Skiera, B., Cornelissen, M. (2015): „What makes deal-of-the-day promotions really effective? The interplay of discount and time constraint with product type”, International Journal of Marketing, Vol. 32, Issue 4, pp. 387-397.